Posts Tagged ‘Economic Policy’

Minimum Wage, Maher, and Math

February 27th, 2014

CORRECTION: The original article contained an assumption of 25m people currently at minimum wage. That number is incorrect in that it actually represents the number of workers below $11.50/hr that would be impacted by a new $10.10 minimum wage. This did, in fact make the math wrong. The article below has been changed to include more accurate numbers.

Maher-MinWageThe ongoing political battle over minimum wage too often seems to lose site of the larger goal each side is trying to achieve. And further, I’m increasingly understanding that the stated goals are not too far apart. This leads me to believe that someone has an actual goal different from their professed goal, or that my math is just way the hell off.

As Bill Maher alludes to in the depicted quote, the right is frequently on record as having a desire to reduce or eliminate safety net programs. This is also a goal of the left. The difference being that the right seems to want to eliminate the net on the premise the need will then go away, whereas the left wants to eliminate the need for the net so it can die of natural causes.

Let me start by asserting something I hope everyone can agree on. As a society, we will not simply remove the safety net and let any significant portion of the population wallow in abject poverty. While some may see this as an obvious humanitarian position, even the most pure-blood capitalist has to recognize that, historically, having a large, persistent, impoverished, and increasingly desperate economic underclass never ends very well for those who control the wealth and resources. To that end, there is an inherent balance between the government subsidizing low-skill workers through safety net programs and having private industry pay full freight for the labor they are using. Someone is going to pay for these folks.

My second assertion is that there is no ideological reason to keep the minimum wage at the current $7.25 rate. If you accept minimum wage as adding value to the economy and to society, then it should represent a living wage that would allow a worker to live without government supplements. If you fall on the side of free market capitalism, then there should be no minimum wage and the market should set the rate at whatever it will bear.

Third, let’s assume that the current minimum wage, in addition to current safety net supplements, are minimal but sufficient compensation for low-skill workers. Finally, let’s assume the CBO report (PDF) on the impact of raising the minimum wage to $10.10 is a reasonable predictor of the outcome.

Given these constraints, the cases to consider are an increased minimum wage at which workers’ dependence on the safety net would be lessened or eliminated, verses a natural wage floor that if lower than the current minimum wage would require an increase in safety net benefits just to keep workers even with where they are today.

Now for the math: the CBO says there are 17m low wage workers (currently making below $10.10/hr), and as a result of raising the minimum to $10.10/hr, 500k (3%) would lose their jobs and the remainder would get a raise. As seen in the worksheet below, assuming the lost jobs are all at the current minimum wage end, the newly unemployed represent a $7.25b loss of wages.

In the other case, I think we can agree that given the current unemployment rate for low-skill workers that there is an excess of supply. This means the $7.25 minimum wage is holding the wage floor artificially high. Market forces should seek a lower wage, and I think we can say with confidence that absent a minimum wage law, the wages of the majority of low-skill workers would fall.  For the model below, I somewhat generously assumed that 20% of workers currently at the minimum wage would retain that wage because their value to their employers warranted it. I also assumed that the actual wage for the remaining 80% would fall by only $0.30/hr, which is almost certainly a low number. Still, the resultant wage losses for the group amount to $7.92b.

In addition, the CBO estimates that 8m workers who are currently above the $10.10/hr rate would see a net positive gain from the ripple effect of a higher minimum wage. While not stated, presumably this group would be negatively effected by the ripple of the wage floor falling. (None of the 8m were included in this corrected analysis.)

MinWageWorksheet

In either case, we’ve assumed the government is on the hook to provide some form of substitute compensation to make up the loss for the effected workers. Clearly, it’s cheaper for the government to wholly pay for the unemployed 3% than to offset the loss of the 97%.

Further, the minimum wage increase should lessen the dependence on the safety net for the workers who get raises. Assuming workers only reduce their dependence by $600/yr, the result is a $7.92b savings that more than offsets the payments to the 3%. Given that Food Stamp benefits alone are about $1600/yr/person and EITC ranges from $500 to over $6k, recovering $600/employee seems pretty conservative. This is backed up by the CBO report that concludes for the raised minimum wage case that the impact on the federal budget would be a wash.

There is no obvious offsetting revenue stream for letting the market set the wage floor unless we assume a rise in corporate profits and increased revenue from corporate taxes. If this new tax revenue offsets the incremental safety net cost, then why not have the companies pay the money directly to their workers through wages rather than paying it in taxes and having the government redistribute it to those same workers?

All bleeding heart issues aside, I can’t see how raising the minimum wage is not a net economic benefit to society as a whole. Certainly it’s not a disaster as federal minimum wages have been around since 1938—a period during which the USA rose to be the preeminent economic power in the world. This does not prove causation, but does prove that prosperity is very possible with a minimum wage in place.

Further, economically speaking, having the government set a minimum wage is not different than a union or other collective bargaining organization setting a wage-price above what the natural unregulated non-unionized worker price would be.

It seems that advocating for the alternative to a living minimum wage necessarily admits some hidden ideological agenda. Perhaps the motivation is really to benefit individual companies rather than society. Perhaps the assumption that we wouldn’t financially marginalize chunks of our population is not valid. But it’s unclear how it can be rationalized to be about macroeconomic benefit to the country. Or maybe my math really (still?) is whacked. I’m happy to have the error in my ways pointed out, because I’m clearly missing something here.

Threaten Me, Please…

February 15th, 2014

HTF__Threatening_Base_by_FlameBunny700As an atheist, I have a recurring conversation with many believers. They can’t understand why I bother to try to be a good person without the impending fear of judgement and damnation. If I don’t think God is watching me and keeping score, why don’t I just go on a hedonistic binge of barbarism?

I always try to patiently respond that my motivation is mostly internal. I want to judge myself to be useful, productive, helpful, and caring. There is an external aspect to it as well. I want my family and friends to judge me positively. I don’t believe in life everlasting. My only shot at living beyond my mortal years is in the recollections of those who might remember me. And for reasons of my own making, I want that legacy to be based on fondness, respect, and maybe even admiration, not on infamy. That is what I aspire to, and what inspires me.

What I don’t usually share is that their question frightens the hell out of me. The implication (or in some cases, the outright admission) is that the only thing standing between them and a life of raping and pillaging is belief in some exogenous force poised to reign retribution down upon them. They are not a tamed animal, they are a caged one.

Of late, I’ve begun to wonder if this same need for external fear-based motivation extends beyond the realm of religion and morality. In economics, I hear the repeated notion that minimum wages, guaranteed health care, food stamps, unions, and any other program designed to help the poor or the working poor is inherently destructive. It removes the incentive to work harder, train harder, or even to work at all. The underlying assumption seems to be that absent the fear of homelessness and starvation, no one would get out of bed in the morning. It isn’t enough to have a sizable carrot in front of you unless there’s a big angry stick behind you to keep you moving.

This same attitude seems to bleed into foreign policy as well. The notion that the USA must remain the preeminent military power on the planet because otherwise we’ll lose our ability to influence other countries seems predicated on the notion that our power comes from fear that we instill. We repeatedly demonstrate that fear of terrorism will motivate us to actions we would otherwise never consider. In fact politics has largely degenerated into a game of which party can paint the scarier future if the other guy wins.

It even strikes me that much of our gun-culture stems from fears that everyone else, left to their own devices, would pose a threat. It is only by being a bigger threat yourself, that you’re able to keep them at bay.

I do believe that most people view others through their own life-lens. That is, they project their own desires, tendencies, and morality onto the behavior of others. People who worry about the downside of atheism, economic security, and world peace are reacting from the awareness that they themselves realize that in such a world, they would rapidly fall into an existence of varying degrees of unfettered sociopathy.

That there exist so many people contained only by a variety of fears is more than disconcerting. And it would be one thing if there was a recognition that fear-based motivation was destructive and there was a collective consensus to mitigate it. Conversely, what we’re seeing is a resurgence in the idea that fear-based motivation is essential and good.

I had hoped for better, but in the end, maybe we are just barbarians with iPhones.

Six Degrees of Adolf Hitler

February 3rd, 2014

HitlerKevin Bacon is so yesterday. If you’re an aspiring political pundit, Hitler is the game. Former governor and three-term senator from New Hampshire, Judd Gregg, is the latest to step into the ring.

Writing in The Hill this morning, Gregg draws a wobbly late-night drunkard’s path from “Progressives” to “Wealth Redistribution”, makes a beeline to “Socialism”, a word that appears in the “National Socialism Movement” in Germany that was later shortened to “Nazism”, and by golly, there’s your “Hitler”. A perfect six hops, proving conclusively that Progressives are as bad as Hitler.

What more is there to say? I mean, you can’t argue with that sort of air-tight deductive power, can you? Surely, Sherlock Holmes himself (assuming he was smoking some seriously good shit in that bad-ass pipe of his) would concur.

I’m arguably a bit manic about this at the moment because it’s the second “slippery slope” argument I’ve seen in the last 48 hours. The other was John Goodman’s essay defending inequality. In Goodman’s case, he had the good sense to avoid Hitler, but he did manage to wend his way from a rise in the capital gains tax rate to 28% all the way to full on communism.

Fer cryin’ in yer beer, do these guys apply this sort of convoluted logic to their everyday lives? Do they really think if they don’t get rid of cable their house will explode?

The crime is that there should be a serious debate here. There are solid arguments for and against various plans to modify the tax code. There are pros and cons to changing the minimum wage. And there are pluses and minuses to socializing various functions and services in society. Further, these are complex interwoven policies. You can’t address them in a vacuum. Rather they need to be considered holistically with other policies to further specific goals.

But silly arguments like these do not advance the discourse. Life is lived in the grey, not at the extremes. If you want to model your world using ideological purity rather than data and reason; if you want your emotions to swell at the sound of soaring rhetoric and nationalist pride; if you want to rationalize the “other” as the root of your plight; then maybe you should be following… HITLER. {FTW}

Being Poor Ain’t What It Used to Be

December 11th, 2013

Income with and without the EITCIt’s worse. But I’m getting ahead of the story.

Faithful reader and economics enthusiast Brian K. recently posted an article from the NYT from economics professor David Neumark explaining that the minimum wage situation isn’t as dire as it seems. He asserts the Earned Income Tax Credit (EITC) helps offset most of the losses to minimum wage in constant dollars.

The professor’s math holds, and in fairness, I was unaware of how much of an advantage the EITC is to low income families. This does take a lot of the wind out of the oft-touted argument that in inflation-adjusted dollars, the minimum wage has declined dramatically over the last several decades.

But the story isn’t quite done there. First, the EITC does very little for families without kids. Granted, families without kids have lower expenses, but an apples-to-apples comparison of childless adults across the decades still shows a substantial decline income across those same 25 years.

Still, let’s focus on Professor Neumark’s standard family of 4. Further, let’s compare that family’s minimum wage income against the U.S. Census Bureau’s Poverty Threshold. And let me preemptively concede that this poverty threshold is an imperfect measure of whether or not a family is “poor”, but whatever its imperfections, it should be consistently imperfect across the years such that it can be useful in a historical comparison. Further, while food stamps and other non-cash subsidies are not included in these thresholds, tax burdens/credits (including the EITC) are in there.

The table below calculates the number of full-time minimum-wage jobs required for a family of 4 to hit the poverty threshold in both 1976 and in 2012.

Year Min Wage Hrs/Yr Annual Wages Poverty Threshold Jobs Required
1976  $         2.30 2000  $         4,600.00  $                   5,815.00 1.26
2012  $         7.25 2000  $       14,500.00  $                23,492.00 1.62

The results show that since 1976, almost an extra half of a job is required just to his this meager threshold. That’s a 28% labor increase required just to achieve the same standard of living.  So while Nuemark’s assertion that real wages have remained flat when adjusted for inflation and taxes may be accurate, it does not take into account that the actual cost of getting by has climbed faster than inflation.

Let’s look at the current “family of 4″ situation a bit differently. Harlingen, Texas is consistently deemed the cheapest place in the country to live. If minimum wage constitutes a living wage anywhere, it should be there. However, MIT’s living wage calculator for the Harlingen area estimates that our family of 4 needs a gross income (before taxes, including the EITC) of $36,088 to make ends meet. This calculator assumes minimal costs for food, housing, medical, and transportation needs. It further assumes there are no child care expenses, meaning the parents’ work schedules have to be opposite enough for that to work. And it provides a meager $176/month for “other” expenses outside the 4 basic categories. This expense model hardly qualifies as living comfortably, and yet it requires 2.5 minimum-wage jobs to achieve this standard of living.

That 2.5 job requirement may be partially offset by SNAP (Food Stamps) and other subsidy programs, but considering there’s no child support in the mix, and that runs about $700/month for two kids I would argue that subsidies might at best balance out the missing child support.

So hopefully we can now agree that getting by on your own while working a minimum wage job sucks a lot more now than it used to. And while trying to raise a small family on minimum wage jobs has not seen a commensurate increase in suckage over time, it still draws a mighty vacuum.

The plight of the working poor is a lot like the climate change issue. You can choose to ignore it or claim it doesn’t exist, but it’s going to continue to grow and eventually bite you in the ass whether you believe in it or not.

Oh, if only I were poor…

November 11th, 2013

Homeless-Family-Pic-2I envy the poor, or at least the far-right’s vision of what it’s like to be poor. You see, in the right-wing unreality bubble poor is no longer an affliction, a condition, or even an unfortunate happenstance—it’s a lifestyle choice. It’s kind of like being gay, but with a crappier wardrobe.

It turns out, the poor are only poor because they are good at hiding their assets in order to qualify for government handouts. It’s easier to play the system than work a real job.

Take the woman in the picture above. She could clearly be a paralegal at a law firm and have those kids in daycare. But instead she lounges outside with them, soaking up the fresh air and the stray dollars of the occasional sap walking by. She pockets all that money under the table, and then shows up at the welfare office once a week to plead her case and collect her stipend for her sloth. How do we know she’s an economic con-artist? If she were truly destitute, would she have luxury items like a stroller and 2 different colors of marker?  I think not.

But alas, I was raised with a work ethic. My parents taught me not to be dependent on anyone, and that hard work and determination could get me anywhere. So, I’ll probably never know the joys of hanging out on sidewalks all day raking in the cash, or of heading to the supermarket to buy T-bones and caviar with my food stamps.

Damn my mom and dad for giving me a conscience. Otherwise, I’d be on easy street—probably not driving on it mind you, but at least sitting on the curb with a clever cardboard sign. That would be the life.

And I’ve probably cursed my kids too. Like me, they grew up in comfortable suburban homes and got sent to good schools. They’ve never wondered where they were going to sleep at night or how they were going to get a meal that day. Hell, a food crisis in my house is running out of cheese sticks. But once they get a taste of the corporate rat race, the poor house is gonna look pretty damned cozy to them.

Woe unto my children, for they will never know the happiness to be found in the lethargic and slothful lifestyles of the destitute, resting comfortably in the hammock of social welfare programs. For they are condemned to work jobs and pay taxes and own homes and send their own kids to college some day. Oh, the humanity.

Fortunately, the Tea Party has a solution. Let’s cut out all these social handouts to the indigent, the working poor, the disabled, and other assorted barnacles on our great society. Let’s motivate folks to move back indoors, polish up their resumes, and fill all those open jobs. Tell that lady in the picture up there to scoop her baby up off the sidewalk and land herself a real man to take care of her.

And those that can’t turn that corner and pull themselves out of poverty by sheer force of will? Fuck ‘em. Let ‘em starve. Just like it says in the bible. We don’t need ‘em anyway, and they’ll serve as an example of what happens if you pick your nose up off that grindstone.

Besides, getting all those people off welfare programs will lower the taxes on us hard working folks and assure my children will never again know tragedies like last Thursday… when we ran out of cheese sticks. Oh, the humanity.